Tax gap separating phone, cable needs to end

December 14, 2005|By JAY HANCOCK

How badly is the regulatory battlefield tilted against Verizon and other phone companies in their fight against the cable concerns?

So badly that Verizon archenemy Comcast plans to collect and remit taxes on its new Maryland telephone services even though, legally, it probably doesn't have to. How's that for shaming regulators into seeing that technology has left their rules in the dust?

Similarities notwithstanding, Comcast's "digital voice" Internet phone calls are not taxable the way that Verizon's regular calls are. Courts and legislators have created a broad and unfair regulatory gulf between Internet and cable-modem phone products, on one hand, and traditional phone service, on the other.

Verizon and its peers are required to collect 911, universal service, gross receipts and other taxes that added up to almost 10 percent of my phone bill last month. Comcast and its peers are not. Like other Internet-voice companies, Comcast could have had a great price advantage and marketing schtick selling tax-free phoning.

But the company, in a stroke of conscience or acknowledgement of the inevitable, has decided to go ahead and tax its phone customers anyway and deliver the proceeds to state Comptroller William Donald Schaefer and other authorities.

"We'll collect the taxes and we'll remit the taxes just as if it's a typical phone service," says Don Laub, senior director of government affairs for Comcast. (The exception, he says, is the subscriber line charge on some traditional phone bills.)

Are the taxes required by law?

"It's a good question," Laub says. "Rather than plow new legal ground, we've decided that we're going to be good corporate citizens." Avoiding taxes could have yielded a price advantage, but "that's not what this is all about," he adds. "And we are doing this in every state."

So one crack in the regulatory Grand Canyon between Comcast and Verizon has been filled in. Only a crevasse, a chasm, two cliffs and several abysses to go.

For one thing, it's unclear whether other Internet-voice companies will be required to pay the phone taxes that Verizon must pay and that Comcast is paying voluntarily.

Rural congressmen often complain that Internet-voice concerns such as Vonage - owned partly by Baltimore venture firm New Enterprise Associates - don't have to collect the universal access fees that finance phone service in remote areas.

For another, Verizon still has to lease wholesale telephone capacity to competitors such as Cavalier Telephone. Comcast and its peers don't.

This year the U.S. Supreme Court exempted broadband-cable carriers from having to provide special access to the seeing- and hearing-impaired and other federal "common carrier" obligations that fall on Verizon, including universal access fees. The court upheld a Federal Communications Commission ruling that cable-modem-based broadband is an "information service," not telecommunication, and is therefore subject to the lowest regulation under the 1996 Telecommunications Act.

But the Bell companies' biggest complaint is that they're being harassed by government and established cable outfits in attempts to roll out their own cable TV and Internet service.

Comcast has had a virtual cable monopoly in Central Maryland for years and keeps raising prices to prove it. Verizon is dying to spend millions, lay cable and bring on competition, and elected officials are saying, "Wait. We're not sure about this."

Verizon already owns the rights of way for the cables; it has existing lines and works on them all the time. But under laws in Maryland and most other states, it must strike franchise deals with localities, one by one, if it wants to upgrade the lines to handle cable TV and cable broadband. It's negotiating with Howard County now.

The fear - fanned by Comcast and others - is that without franchise requirements Verizon will "cherry-pick" the most profitable neighborhoods, leaving some bereft of competition. But this is yesterday's issue.

Decades ago, when cable was new and granted a lucrative monopoly, it made sense to require every house to be linked. But now every house is linked. Verizon wants in, and some competition is better than none. Comcast hasn't exactly offered universal access to its voice-Internet product; so far it's unavailable in Baltimore, Prince George's County and Washington.

So let's let Comcast find out what it feels like to be the "legacy" dinosaur and Verizon dress up as fearless upstart, for a change. Don't expect Comcast to give more ground voluntarily. The next step is yours, regulators, to correct disparity in telecom taxation and regulation. Let Verizon and the other Bells fight with both fists.